TLS - Earnings call transcript Q3 2021

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Operator

Good day, ladies and gentlemen, and welcome to Telos Corporation’s Third Quarter 2021 Earnings Conference Call. At this time, all participant lines are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions].

As a reminder, this call is being recorded. Instructions]. [Operator like conference now Mouzavires. to hand to would over the Christina I go Please ahead.

Christina Mouzavires

joining Telos Wood, to XXXX you Bendza, us Thank for Telos. discuss of and With today CFO of CEO financial me Corporation's is and John Chairman Telos; Mark results. quarter third

review President for and is the of financials Vice on will and priorities, Mark line me Executive simultaneously being Vice open earlier where earnings brief and cover us. press John the with issued guidance. Executive today's call posted join Mark will is Then Telos the strategic Solutions quickly Let webcast. on Security Investor and the Telos' Griffin, today COO of presentation. and was release Ed Relations Williams, begin and Telos; President website we'll remarks Q&A third also the format quarter The results this of where will

investor Additionally, on provided our slides we presentation website. have

any Actual in to comments conference are reasons, on are provisions are and from Federal materially begin, could current the factors duty Safe update in to our some Harbor laws. and call including of that we want and call any statements. do assumptions described and uncertainties. differ undertake made expectations made We and today's risks on not the release results press this subject are statements These this forward-looking emphasize Before Securities we earnings various to under our forward-looking based the of the that statements during filings. statements SEC

Telos' to substitute results. not as to in GAAP financial are we should non-GAAP during which today's non-GAAP from in supplemental help financial for we and clarifying addition financial These useful call, isolation considered measures addition, and a In performance. be measures as or measures, investors understand discuss believe will

replay website additional the that, Telos call our Investor of results John. find webcast and reconciliations of link. website. disclosures Relations page the comparable Investor press next measures, including earnings for year to be I'll will non-GAAP under the regarding available Relations in our and the The can the these over company this turn release call You GAAP on on With

John Wood

Well, our to XXXX call. Welcome you, third financial results conference thank Christina. quarter

with meaningful on XX% cash We generated continue quarter. Slide reported margin adjusted to X. We sales XX% Let's contracts. this flow gross to $XX.X million I'm basis We sales XX%. increased pleased expanded from We begin a gross our we million. growth, performance to points of today our delivered profit XX% win And positive by XXX record our $XX.X operations. growth.

turn X. to Slide Let's

our new been We the as and are of with nearing end a publicly-traded energy first an year busy exciting It's year pace. operating a company.

XXXX, has surrounding and directly to Chief Solutions, XXXX, responsibilities company. efforts Security handling senior message President to year, for became In Operating the Mark One Brendan President Brendan leadership ensure Malloy has of and General Identity Williams my ultimately he his will Solutions XXth, agencies. Secure Ed many who support X Network operations XXXX, the Xacta, all Networks is the as and XXXX, November and While PreCheck we who provided Williams, since since Officer Ed's operations the the Malloy, since the January the Federal in have of retirement today, he end the Secure nearly of with of others Effective will automated oversee served to where confident tenure and leadership our deep Executive and has business, developments of Griffin a throughout Mark development, his have Brendan became will the who the leadership end Vice XXXX. Ed in winning take intelligence throughout opportunities such the Brendan stay TSA phase on on system the area. members, operations bench our business Telos been will we in decades Vice to of includes dedicated service and instrumental all will -- tenure, business responsible joined the in expansion growth. become Telos the report Ed of Telos to Manager To development provided Manager Networks business. XXXX. he of with smooth staff our transition, and Executive in been and senior us Mark Secure Ghost, solutions a Secure and transition stay I'm which navigating Telos X in XXXX of as business overseeing has implementation security community and and Griffin DoD, business, step Networks, me. IDTrustXXX. until the of team we nearing General new contract. Ed are will their next people surrounding needed to of the executive careers. was our he will of that as the welcome this

updates. turn to let's highlights our discuss to Now Slide recent X and

quarters, talent. markets. into recruitment of ecosystem. partners partner to channel progressing. top a enterprise Telos is and CyberProtect we've of our which objective, Most journey and groundwork tripled the practice. Telos XX needed lays commercial a This the Over The government team partner our in the marketing have to for the channel program the coming our years. sales, attract achieved more we've and Since been to our beginning commercial have channel both of up on new in of partner and opportunity program, pursuing the a X business our expansion ramp last continued expand XXXX, sales gives our force actively partners and We're build-out solutions partner

driving ATO expect stands stackArmor Agency, to authority revenue until Splunk called operate. and us go an from the to and pressure to Alabama which deals Housing XXXX, AWS, a Urban we begin the the the quarter, didn't stands announced allowed and of Medicaid the seen initiative few Department While also for the and test we've a channel with third which channel through FASTTR, In channel ATO, Faster with program. we partnership Development for

software Hat that for contractors complex ThreatAlert and partnership the FASTTR a required our program. great technology added regulations. state with markets. of security organizations providers customers Since So Splunk, into been launch, as Federal, with independent example defense This have Wickr and solution how government benefit regulated reach. FASTTR is and our leverage embed Red and market comply to local a can partner-driven regulated Faster expands Telos our and of ATO

go-to-market education have vehicles. contract expanding purchasing Telos SLED. specific. any added and is and state both In Xacta third in of quarter, or is and what solutions the government we and SLED contracts, Another reach A strategy call our example to of solutions to procurement XX local our component of and regional SLED markets we our Ghost state successfully critical

We and are relationships pleased existing strong customers. nurtured with with very performance we where in the new have Security our Solutions Group

accelerated growth. to see continue We

For example, awarded customer a Manpower through Data DMDC, the of Defense since XXXX. Center, XXXX, or X Telos mid-September option-year

its Our the and of Defense programs. access within IDTrustXXX supports common security solution Department

a in award received of DMDC QX. part the million As we over orders $XX in

Chicago assessments The business later is bring Harbor and Designated current to within security beginning customers, and airlines from our Aviation of Channeling the the option-year in adding solution notable receiving on Sky additional criminal use Chicago threat history continue Service, International. X practice Parcel airport Midway new extensions most O'Hare, full within where UPS, for or including QX airlines our Phoenix and record this United they cargo its checking with expansion year. announced We

with cloud continue a Xacta And continue third of around We we Microsoft to work closely our providers, cloud solution. recently to service We to catalyst cloud Oracle, with IBM. service engage The footprint. customers. for commercial added Oracle our roster our expanded to AWS and Google provider, cloud Google, provider that the Microsoft, to a cloud enterprise CIA awarded contract AWS, continues be was IBM and and with

insurance leading company Xacta Xacta its annual wins in VMware, a cloud sales supporting SaaS received automation for As and technology a FedRAMP an following controls compliance XX Salesforce, renewals. of renewed FedRAMP notable to validation; the license efforts; of of overall direct we an and computing its security selected support support virtualization CRM Fortune annual performance, its Xacta requirements. leading provider company of renewed in license a

of Labs latter expansion. U.S. The include customers New Department Development. Urban Federal and Idaho already towards Xacta National moving Housing is and the

were the variety of contract increased financial Telos And an sectors. services special XX%. for customer New option-year a by an Telos added Xacta wide Ghost utilizing wins and and also the executed value in in continue viability construction of markets. a intelligent clients demonstrate These support solution to solutions

existing Xacta Administration, that for National our renewals a addition, with the backlog include among the customers. programs for Agency, Networks with added see a Agency, of we of Social Investigation solid continue In Secure the National In the solid large and These we're Those Bureau offer government of the to provide the Federal associated future company. Security large Geospatial to customers Defense. Department revenue quarter Intelligence programs now business solid recurring solutions Security growth and others. of into had to foundation pleased the business,

In Next, public in the enrollment I'd again on anticipate in expansion PreCheck come notices and to an on providers contract. TSA TSA they July like the XX, PreCheck provide online confirmed XXXX. then to additional September update that TSA

We program within with day short-term the the in to so That's customer its granting is enrollment that experience. superior program us. provider a ready TSA's TSA We're experience. systems is encouraged launches to the ensure new the own TSA's operating a commitment time while like enrollment from I'd option-year to multiyear has TSA benefiting by is all The of PreCheck for of ecosystem feel environment. contract a providers footing with and can expedited screening authorization the this and to daily security and TSA related customers to be we want confident operate securely they it with demonstrated good support that team ensure security communication of program on multiple quality the the in efforts thing to from the the near Our superior officials, also transact delay extensions. reiterate stand that line. solid of to can authority

the program. some Telos. on enormous provide The infrastructure new money, territorial to Better has cyber cybersecurity implications including Build package, cybersecurity on now would and for CISA, for Federal Back Biden's directly Back specifically state efforts. in let Cybersecurity of by and will and result $X.X services to ultimately in these bill me cybersecurity approval infrastructure tribal So provide working could Better for grant local, money have process. an We million believe turn by billion funding cybersecurity both industry. for beyond Congress potential $X This new recently $XXX Congress by a initiatives for comments or to the million Infrastructure FEMA support version of state, Agency, $XXX Security DHS' legislation, the Build and an need Telos. initiatives President supplied latest is new annual billion The which solutions of been congressional appropriations bill final via above dedicated increased given and and and the cybersecurity provided for many

currently the the operating risk areas, several While boost awaiting under Defense, a management including cybersecurity is House would and the of individual continuing between in government Senate and infrastructure, the for negotiations Department cybersecurity appropriations resolution, funding also final operations. bills

these systems require As in part protect it technology administration's against and cyberspace. actions that announced actions of discuss Mark? and known themselves a importantly, number financials. of Government critical requirements operators that to impose cyber because initiatives focus our Bendza, attack. July enacted they rail to a Federal the once plans to in directive recover threats to critical higher TSA's vulnerabilities initiatives, organizations risk follows represent these to provide the designated first addressing efforts of infrastructure real of cybersecurity provide pipelines nation's XX now with certain to measures quarter for operators on who finalized, from aircraft our and mitigation in with pass additional significant the establish We it a by long-term Telos companies business believe are take to will U.S. airport opportunities. once third critical will higher This and mandatory IT recently implement will would and These by the And and a critical require security. transit TSA TSA action individuals sectors. cyber to I'll some all operational infrastructure, the level of owners more Mark CFO,

Mark Bendza

John, for you, joining thank today. us everyone, and Thank you,

$X.X million, gross with every XX% this margin line million. record growth, million and Slide business, $XX.X margin growth, sales of positive of of cash year-to-date free cash X. cash million flow, of of I'm $XX.X quarter, including by our Let's pleased XX% XXX highlighted across results points from gross $X.X reported adjusted to basis gross sales free turn flow bringing expansion expansion, profit flow operations to

third $XX.X starting let's in Reported revenues Now in million get the XX% XXXX. to into grew $XX.X revenues. XXXX million from quarter details, with

our the revenues as revenues in period quarters, Census down impacted grew In notwithstanding contract from U.S. to U.S. by with total same on Excluding year, is grew quarter contract meaningfully for XX% Census Telos previously since sales third ramped Bureau, as contract Bureau, ID our in last will million $XX.X future XXXX XXXX, XX%. $XX.X lower periods the prior U.S. the year the with of planned million million which Security Bureau. comparisons not Total third quarter with Solutions in with Census mentioned. the $X.X be

Federal Solutions confidential Telos was by Continued strength government. program and Solutions ID, in Xacta Security with driven our the healthcare

Total business And quarter The support work increase the earnings to X X-year in our XX%. contract U.S. Army with contract Communications Air Networks call. the migration XXXX continued to third to kits upgrade for to by Force. continued driven Bureau, mostly grew systems U.S. was programs communication million mentioned the site for million last region. provide on in $XX.X the of our grew XXXX. the rollout a XXX% This Theater $XX.X same quarter and on throughout modules Excluding Deployable modernization in Solutions for revenues Pacific a contract of significant the Secure revenues support U.S. telephone from the Census large security third Security and

on into continue We expect these work to XXXX. programs

Now profitability let's and discuss cash flow.

million XX% million record to in increased profit a $XX.X gross quarter XXXX. $XX.X in Third from XXXX

increased margin XX.X% Cost in of the from not $XXX,XXX did same stock last XXXX. sales compensation year. exist XXXX points gross expense, Third in included basis XX.X% XXX to which period quarter of in

every points gross Security margins Excluding gross expense, Solutions the across of XXX to increased margin line margin impact basis expansion gross of compensation Secured including business. stock expansion, and drove Networks XX.X%. both

between a from our favorable Solutions' in before compensation we points the investments Xacta $XX In partially post and same margins offset of within Telos and the discussed XX% next-generation and customers. in both performance $X.X security increased to SG&A. expanded by of prior income operating gross previously, for $XX.X sales $X.X increased discussed our capital million same was and of share flow $X.X expenses profit year of adjusted impact ID. adjusted XX% restricted to factors per ensure million in from previously $X.XX SG&A post-IPO net that in $X.X $X.X increase, remaining our now of and driven the EBITDA stock profit by increased force, The XXXX. capabilities by generated quarter. the earnings by marketing in $X.X million. interest in record to Operating primarily direct the our model flow attributable R&D $X.X income shareholders. share driven approximately of G&A million compared per XXXX expense expansion, and $X.XX million alignment in to to a in XXXX our expense cash Solutions did profit R&D expense result deleverage quarter. share $X.X mentioned from million benefited gross The million million our from increase investments from to balance grants quarterly minority of of staff, strategy Of to driven million have development as channel and a IPO. and as simplify the XXXX interest stock of corresponding cash the $X.X per from XXXX, XXXX of sales percentage was structure and growth into driven from Operating to increased gross XXXX a last and to expense income but a The the this million Adjusted benefited $XX.X period program elimination XX primarily for free in loss free higher income took XX% loss positive XXXX. the and stock also of sales year to from R&D not sheet compensation retention in in margin we primarily fact, the profit operations employees and XXXX, Security record over was actions interest XXXX. functions to of increase to planned million compensation previously of $XX support in flow our cash adjusted a million generated million in period. XXXX. compensation investments and business in incorporate million XX% by and $XXX,XXX $XX.X in is due and SG&A Year-to-date, by mix investments million stock from the in in in expense tool $XX.X approximately in a net XXXX as during income We gross increased We

turning Before sequential our second performance our the to to the for like outlook regarding quarter. to from I'd quarter third year, the provide insights

During growth sales our call, XX% forecasted in $XX.X to million expected third second sales the quarter quarter, million roughly $XX.X second of quarter from would to we roughly indicated on quarter compared the of sequential $XX $XX for we million. actual to sales third our the million to the Based XX% that that second earnings quarter sales third of imply quarter.

international included government AMHS multimillion sequential customer growth secure communications license to software a forecast Our sales within dollar sale an business. our

margins would scheduled has quarter the within of our forecasted have begin program that had have had would If million been we XX%. the range million that customer current been license in $XX move and over gross originally as to third quarter sales Although third the year. to $XX the the originally program is our expected, of XXXX, out in decided sale to software software still our portion the occurred

for preview high-level the a the financial Slide year XXXX. of provide X. and to of outlook We'll remainder Turning discuss our

As reconfirmed it notices available travelers TSA John XXth public September to previously before in mentioned, providers again be enrollment will July expects of the the in and made has PreCheck XXXX. end that additional on the

are encouraged we deliver by the expecting quarter, latest reflect as we as expansion Communications are TSA's quarter we businesses. to public our view well fourth meaningful stage at updating Networks While our the our PreCheck results sales year. Secure this not the XXXX this program our to third on in Secure and confirmations, guidance program Accordingly, are and this

million million to sales adjusted of of original $XXX XX% $XX million. to XXXX of $XX growth year-over-year Our guidance $XXX million, XX% EBITDA and reflected to

our with XX% guidance $XXX million XX% $XX growth to million. are million XXXX to $XXX updating of sales We $XX adjusted to year-over-year million, of of EBITDA and

Our XX% updated guidance implies fourth to year-over-year $X.X $X.X quarter XX% $XX.X sales to and million, of growth million $XX.X adjusted EBITDA of to of million million.

to the programs on earnings due guidance. assumptions lowered our we our Now delays modeling updated to On let's recap customer our buildup call, our control. X beyond second quarter

for First, $XX and and Medicare program we Enrollment million eliminated EBITDA. with Services, Provider the and of Centers $X million of Medicaid the sales Oversight adjusted including

Second, eliminated a quarter. updated of $XX attributable EBITDA by from $XX well CMS $XX in of EBITDA TSA of lower-than-expected for by the of have million now TSA our the adjusted million quarter Federal our and by confidential million $X we expansion PreCheck million PreCheck outperformance. million adjusted our our EBITDA million of adjusted of in outperformance maintaining with With fourth $XX In expansion while The adjusted are program forecast for to of lowered and performance healthcare On $XX $XX the million EBITDA remaining sales the TSA guidance and are as this call, sales due and X million quarter, we assumptions a to sales of million elsewhere these programs sales guidance total, $XX expense. million. our we program, the second of the G&A earnings adjusted programs portfolio, eliminating partially we example, EBITDA as and on fourth government quarter. reductions program offset the assumptions in better-than-expected and sales $XX $XX forecasted

business reflects $XX of Secure the previously million second to earnings $X to mentioned half. subcontractors within business. disruptions The forecasting sales that on major Secured fourth The since one lower large call $X of second $X EBITDA are quarter G&A and Networks changes quarter Communications shipments expense chain changes million in a the We outperformance. several reflect sales our million lower-than-expected now from and supply adjusted program of our outperformance at million will our also delay our

our the free free with flow cumulative pleased third of for first very year. cash our and positive quarter cash in are we performance the Lastly, the X flow months

not in result However, as flow positive of or generate a XXXX. do free the our expect fourth we full revised guidance, the year cash quarter to

discuss let's for preview XXXX. our Now

Although direction Networks on XXXX specific we for Security dynamics Solutions provide our not year-over-year today, provide can we Secure the will and some sales guidance businesses. growth high-level for

we software to Solutions commercial has PreCheck recurring growth as Let's by Security are growth ramp Security in a that approximately later the expecting the headwind We're year the Solutions. Solutions of expected year. with with potential primarily course base contract another for start U.S. Security Census with sales Security top revenue throughout We excluding the to the XXXX on rate XXXX, driven line Solutions year forecasting of the well of higher of for continue in have the the solid XXXX, from Bureau. year-over-year strong in of potential TSA believe in the as growing

sales be XXXX program. to we're grow network the due Keep in to Next, Secure Networks forecasting secure large to in XXXX. XX% flat in to down of expecting we're over mind, a completion

believe multiyear year-over-year Secure very in high sales comparison Networks So high a a XXXX. growth is will with in we the at Nonetheless, programs process, large hold hurdle. level

with program on Centers to is see relationships, meaningful grants generating our continues summarize, and Services our order intact, software not outlook benefits based that normalizes. The sales and initial and follows. XXXX disruptions on be mandates We TSA start markets course employees on sales the recruit our the throughout The and the supply XXXX ability XXXX. to operate our and in of commercial in the thereby Oversight as sales remain to vaccine delayed, from our in To Medicare to are Provider program XXXX. to from chain assumptions our our investments Medicaid initial and end authority ramp and growth drivers for Our subcontractor Enrollment executive XXXX. no any marketing several or cause retain does to -- in late key strong.

continued We long-term are well growth, positioned and remains for outlook our unchanged.

some of a will Our profile delays, our to pass which up to portion customer I'll push growth John, will the With on reflect XXXX X. wrap preview right. back that, does who Slide it

John Wood

Mark. Thanks,

we're We're So on commercial priorities company leadership have continued in team, nurture team adoption your place are seasoned forward with to adoption sales of strong line profit the performance of which I to And confident next our strategic Bendza, usher and record productive Mark expansion. drive and existing of another Ed phase robust the growth generation. quarter, this solutions our the into this gross will build Mark cash through open increase for substantial we take our forward year a of underscored excellent partner by and available growth. Williams, We're was revenue our XXXX. growth, and solutions, strong a moving Q&A. Operator, customer questions. look ecosystem Griffin With we very pleased that, please to in

Operator

Instructions]. [Operator

first B. Riley of Securities. Our the Cummins with comes from Zach line question

Zach Cummins

into yes, really Mark, for going looking and all the outperform color, Good outlook when in you that the just guess, the 'XX, that I at business guidance When guidance thanks for that FY didn't forward. down I dialing morning, year full of of, John incremental I'm But sense the of more little QX? especially around gave a you Mark, and your expectations kind TSA outside that. thinking really areas me here were the other they give of CMS would you can mean, here

Mark Bendza

Yes.

driven change really in by So listen, outperformance, outperformance of the the things. terms is in X really the

that perpetual within this expected, that were but having year expecting That Secure then license XXXX. secure we the the we're it portion is the program, of a as perpetual program AMHS had is our outperformance that other disruptions on will out within Comms third it's of sizable we piece license a It's the launch networks. still on one in quarter First, meaningful the business. so impact program And line. experiencing that chain supply pushed on has

the there I'll of guidance supply low the at is quarter, still say low even our what Now end. meaningful the end is fourth at chain for risk

We end the of in have December range. the guidance shipments at about of assumed even $X million bottom

expectations So please keep is about also as program. of within quarter, other broad-based Security -- out, aspects we expected, million good $X.X would listen, AMHS and gone programs the I large of outperformance of have But more of around elsewhere outside yet Networks that and gone And the Security within within our shipments have Networks thought like then this but strong there's as I within elsewhere now earlier. the strong not Solutions Secure feel another the well broad-based we outside we across in and really which have performance Secure performing with Solutions broad-based Security say, one business as that all out we that that Solutions mind. million. feel other reference And comfort that performance, then by made $X.X should in line portfolio,

Zach Cummins

into just understand. I high-level But fully And insight at helpful. looking appreciate this. review, didn't maybe I your That's XXXX Understood. some really

the of you're that what going you And terms in post Solutions, to expecting Could rate excluding rate the I'm growth Security In contribution are line that's growth this the to you with this Census Security be assuming expectations from Solutions just contract? for year? year? clarify

Mark Bendza

Yes.

high range, grow so headwind So high in to the going the in from of when I XX% XXs. guide back Solutions, out think, embedded U.S. our is Census you Security kind contract, the

So the XX%, short of of short probably high in but -- XXs.

Zach Cummins

make fully Got clear it. on just And that. that's, including trying the sure to headwind Census from I'm I'm contract? the

Mark Bendza

from Yes. headwind excluding excluding That is Census. the the impact,

on it be calculate you if So would lower basis, than a reported that. it

Zach Cummins

And give us I assuming to XXXX. the going some to on in any finally, just could that into potentially then be you're more seems already mean like contract, that pushing with there's you going Understood. That's what's CMS not it can the and insight from contribution be helpful. right? further program what on that

Mark Bendza

Yes.

guidance about a you I'm let me general. kind of give first, So in perspective just thinking on how

weeks So forecasting guidance I've to the as I've process recent always taken and role. transitioned in the over here

part to philosophy is you're to our of and with my today kind what we're starting So outlook guidance. the around making guidance little bit in a changes on see our

And so we're currently working through our 'XX planning process.

discussed So And earnings through the course, we a of scenarios We'll into of in do today. beyond on today range provide expected the we're But the more not than guidance in pushed short-term of 'XX work couple for 'XX, 'XX assessing drivers originally CMS. and our case 'XX 'XX, process. course planning as of we've a call. they we're growth that XQ to even of meaningful or throughout as we our going maybe

Networks that, Secured to of due I sizable program the year-over-year in large a addition to backfill expected to completion In will 'XX. headwind have early as mentioned, a

And putting the at CMS think I look certain, Mark a to right I 'XX I'll here more briefly think now about I then is so and guidance the additional progresses opportunities on based what guidance degree we can year to opportunities And guide visibility pull especially what have outlook. in But a into of high like on more we're as and this way based on color feeling visible with into our point about time. and pass comment our at it I'll to stage, timing. we're there. to that. how Mark into not I CMS for respect Griffin But seeing to we're become

Mark Griffin

program been on checks lower that population to And fingerprinting. background undergo see was reverting that needed to Zach. way we was this in-person agencies is that based CMS Hello, anticipated back have providers risk full government that The health the population. not the

vaccine, increased up. fingerprint has that delayed. anticipated volume, comes been to afforded contract this And mix was so and due both back the come That into that and COVID the until population has opportunity expansion the

so come into health that And talking Mark guidance not lower-risk specific the population John and both providers about that's are that have is the yet.

Zach Cummins

Understood. for just final And question me.

of terms guidance, Security mean, In in give Networks a assumption mix and Secure the I rough between Solutions QX of the you QX? us can

Mark Bendza

-- going better lower second we it's about at We're to quarter. me be that one here. Yes. saw It's -- about -- than this the little at the a give XX-XX

Operator

the line Wedbush. Ives Dan comes question from next of Our with

Daniel Ives

first in off asking what of the management I the the deals So of could guidance terms just of that's as my is, cut. lot complexity? timing terms just miscalculating how massive And my are we're in of question, a so seeing as question, think given just well be people

Mark Bendza

Yes.

a take let me So shot. first

take me first Dan. at a shot Let that,

we that of here equity are about. the needle-moving about listen, is growth excited opportunities our shareholders very think of one that in our some excited portfolio have think we our So large I and story very strengths we're

what to some this growth pull-forward movement the that third we're Now there is large a upside meaningful bit versus And can first even expected. timing, better in forecasting when of customer we of that that we double-edged year sword with of meaningful impact than the the of And quarter, into we those order software out in opportunities license actual first little in year when it we the ended a had saw and the quarter. one saw this quarter terms some up in that the of the we on results. have a cases shift of quarter

it. So that's about think the way I

guidance think said you're I high that visibility and in I a starting is on this see based into have that degree in I will going to at that time. guide is the point As of my guide philosophy on quarter earlier, I forward, what

you're to fourth and anyone and But here on. preliminary seeing I'll in our so 'XX. guide look John there on wants that to that And well for we as going going if comment else forward, how you're or quarter pause the see see as

John Wood

Dan, it's John.

TSA, based guided to result, perspective as of on ATO. as don't a general, that could point we get on least, I'd ATO. get to And program thing could the to not at office was other in the an have security just, But able today, office where they that we was say The that we when deliver. our is the

So are quarter we happen -- the particular in TSA. these like And didn't Mark just said, they're multiyear on it unfortunately, programs, large programs. this

Daniel Ives

cut isn't there it $XX a million $XX But Yes. cost only of and is TSA? million

John Wood

from some million There's $XX There's TSA. large...

Mark Bendza

Yes.

those... So let's take each of

Daniel Ives

want I know numbers. just No, clear I to just -- wanted

cut? guidance the is much how -- what So

Mark Bendza

million $XX million. So line, $XX to top

Daniel Ives

Okay. much TSA? is How

Mark Bendza

and Of Well, X then to $XX is $XX no, million TSA there's X primarily between is factors. million the $XX other balance there. components the million,

getting First, large impacting Networks. disruptions supply chain -- Secure program that within are that a we're

impacting those of into of license go that fourth year. Secure this quarter one is license, Communications forecasted multimillion the and to this the that's shipments the are the are our a there shipments dollar of business, And piece of other software our Secure end the customer quarter. disruptions of first supply end large the within our out that a out program license perpetual pushing Networks is So out chain push Those to at large quarter. subcontractors, on several going

shifts, represent none any important changes these and way these So loss point, an in it's think none I of business. of a of

cases, of this timing is control, in timing. is of our actually, All unfortunately. outside all this And

Daniel Ives

would like that Okay. And a of from forecast and keeps months any just in here getting follow-up. guess X What your this? pushed now, were it terms to X, I ability investors not give back just confidence

Mark Bendza

about high we things Well, forward, based again, And that as as -- What a process guidance imminent, only Dan, I'm -- in guidance the I've recently become will forecasting guidance into so a is things guide of over is pull this have materialize, the over at how degree course going year. of again, taken more them time. thinking on here. point the the visibility into we'll then we

here, at from So philosophy in shift of to least a perspective. there's of the terms be my going guidance

Operator

Bachman Our Bank next comes of line question the of Keith from with Montreal.

Keith Bachman

that million had 'XX. similar a I I thought to I couple And we of a might a kind have be the last of $XX go Yes, for associated questioning. tailwind previously, think to back line to CMS want second. with it

flow around workforce big that, that those big But is risk 'XX. and next a well. expecting zero, put to on context Pretty is Is think some this there. or saying things maybe change CMS in perpetuity in pushed along are get But there variance year. a lines? What as hybrid stays were it's that's zero. a zero conditions you're a that some allow And/or I zero into mean 'XX? that right? of perpetual it's Now that the to might for because into pretty CMS people the TSA most I

John Wood

Mark is that I going the that we wasn't data, were answer Keith, to I before we me people I asking last recall about might said it where path vaccination talk the down using points said program those because of get basically And pushing we're call dollars. Griffin, But Telos. Identity down like as as win as our for CMS. ours helped I'd of that's here, question, the more majority usual had the you has CMS additional discussion from our our to until for you sort about And of are the any add where to process in where XXXX. we manual business. ask to the had about you well we'll -- a HHS still that's here doing Mark And when process on back business also intervention running over, Mark, TSA at of business like automation us we to the move vaccination

takes and -- Mark today, Security So Solutions. over

So Mark?

Mark Griffin

Look, Keith, program. the is multifaceted CMS program a

So both the was that there multifaceted enhancement Because targeted ecosystem. opportunities Telos looking a view security program. previously million will are on health of that and primarily it's we that from providers the fingerprints program, as that that. other be of coming at revenue you into earlier, on point of that a an annually was given X.X I expansion roughly had And lower-risk explained

is population. the which earlier basically capabilities also to modalities acquisition fingerprinting year, be we'll in touchless collect Fortress bring the So application to that and the we the Diamond had in other acquisition, targeting that

out just we program expand. X.X fingerprints. XXXX million moved from Right So will we're the guidance that now, that on confident specifically the

that other So program XX-year, other bidding to program into that there security a those opportunities bidding we'll $X at we will are time. on. be as elements as we But hope I'm And the corporate on to this expand billion come corporation mix. security bring that be that there on. able those program into are expands, not just the that within

Keith Bachman

on second in the My is being commercial late impact question 'XX. Okay.

While inconsistent and doesn't 'XX to are it's collective certainly, say months. for X hiring firm, I the been kind of, late reps sales impact sales now performance a -- most very commercial to the course given reps to enterprise while of XX And the you've appreciate the of concerning. 'XX. come throughout means And

some if should of if 'XX, hiring March see or And course through quarter. you've average, so you you been in the weighted a impact took June even

it a -- not impact? So leaves greater begs why kind the of question,

Mark Bendza

of Yes. won't more that, have Why -- forecasting don't Keith? is my indicating in visibility impact what time. It's signaling it's on I I what script. the think said than based not impact. I something script So start be degree earlier. that Maybe earlier with earlier, we'll in at in level point there was listen, I'm and the as meaningful I guidance a more But more I about that see of

of course So looks the next over ramp we'll the curve what see year like.

John Wood

be we'll point are guidance here And between of the give on the Keith, I'd QX is doing still that 'XX out, now us more other thing heels things earnings. There actual for and to then.

sure everybody is Mark trying having And give you what a, with will, of to if time a programs. do sort of and to these understand deal so make ahead what to large is we're that trying block heads-up

Keith Bachman

to -- provide any last at directional top is based Okay. you down, on the try to kind that want in is barometer at the about be Well, kind expecting of cadence least least margins but philosophically, thinking be I'm just my to there can any should of we set so neighborhood, folks on just least any flat, barometers how models one philosophically up, directional in not numbers, at line 'XX, perhaps? specific their

Mark Bendza

Yes.

So think there takes are there. and puts I a of couple

that revenues program, that dilutive gross term, in program, in in on over So costs of the into I as also, at program time, PreCheck margin days be Over program, describe a fixed get would to you're consider scales be running then short that margins ancillary that to higher. that pulled you're so initially first, phases and scales those as to as the of And sales gross would gross to going But are through being early to dilutive P&L, particular, in to margins. going cost PreCheck into going program the expand. see I time, against mix margins. the higher

to expect terms and solutions I networks, on there's slightly then between think networks I I higher mix the secure solutions year. Secure the think would Networks outgrow for opportunity And network next in side, year. of mix to next

to -- a see should so there. you And going you're see tailwind

higher margins solutions in tailwinds headwinds the and form So then terms tailwinds of mix of within between in in the Secure networks. potentially Networks better PreCheck, and form of

Keith Bachman

ask November of the I'm It's cede then your floor. the mind now TSA? reluctant status and -- there one even any ramp on of just XX. let's Is since Last Okay. But pushed what's with should the June. Or to I'll in of kind off. quarter? thinking start March has -- perpetually res this the any be chance been we in is there

John Wood

answer Griffin question, Mark have to directly, that Keith, going I'm So Mark? okay?

Mark Griffin

providers. that Keith, Act XXXX just mandated TSA Modernization that PreCheck I want that is to TSA expand touch the a of point law a first on

So question wanted it on program is the a there isn't when that mandated to of that if everyone or this to law phone I remind just has by expand.

expect still facility our week authority working get is working with ramping revenue daily, to as the so and experience we to last and indicating we we're at at year as where by and And checkpoint. both And as here start at operate along our passenger indicated us improve January. still is, this early right all our TSA was fully now Mark goal is to through, earlier, to John, we're the and

be in we first first do the quarter, in June. the probably significant Now start not seeing it quarter, revenue won't but

Operator

from Our next of Henderson Alex line question with comes the Needham.

Alexander Henderson

and the has? clear were Is the hacks happened causing the it What that's half? first much slippage? what has we in of simply that Since the TSA of slipped it can just explanation us concise a mechanics as as just TSA, -- talking give because about the why are you is

John Wood

ask again you for Alex, I'll guys. Mark answer directly to Griffin that

Mark Griffin

procedure Alex, that security increased to yes, I and policy of heightened delay. added the believe has some

we government the authority operate. to mandates us as have and the contractor, As for you that to the process government know, procedures follow

heavy the that providers of strong sure come the their very is a components that component organization. within process want has protective PreCheck of to is of and TSA make out so all solution And part expansion whole all a the security -- through expansion And of secure brand, their with that. so vetting is gate they gone

John Wood

Including their own.

Mark Griffin

organization. own Including Right. their

government right authority contractor, we process very we we we in are their seeing a operate. have the are confident moving and are the And for to forward so direction. I'm follow progress. Unfortunately, to

Alexander Henderson

be timing, the months of in Well, third anything we challenges for going launch when materialized? there left, quarter. got -- so the there this actually I that the relied Is what than what press with quarter other X.X now? suggesting I confidence guidance ago hasn't of when estimating the the guess only the anything there I upon say, close X really going mean the I mean release, this different to calibration cannot back months they're timing press is seen is which you gives year don't fourth since to been understand to timing this we've releases was, is going already of

Mark Griffin

steps in takes. Sure. I seeing the the security your approval process review process can There are in appreciate that. documentation. a the government that within We're steps government. as They security provider the

were although last that various were take that steps those the call, in process. we they they And to delayed. were there's that earnings So going on begin confident processes

we And seen right progress forward the have steps. in move now so

And following And the those their by and so are now the we're in being obviously, process security guidance. processes, TSA. in process under steps those suit taken

Alexander Henderson

dynamics either the in ATOs you Relative with timing would change the ramp that in to we as any competitive you is that's the of associated TSA, there these help hurt 'XX? or

Mark Griffin

PreCheck you're aware, is TSA in to eligibility the market So due expanding as growth. population

providers. X awarded grow. So to to expansion the population continues TSA contracts

exist in implied on the such, launch the this contract as the So based and competition on changed delay always in... hasn't will

Alexander Henderson

question other of than of Or getting some you able and you? advantages Xacta at to risk have be of ATO them? the time how question fast of really the you able because approvals? will to Do line? have other comparatively same they get be are get you market software the inclusion of goes companies to them those Or the compliance the can sooner before the the Well, to

Mark Griffin

government does status of insight the So not other into providers. the give us

the leading approval gate a first headway out provider. and as we making However, we're of solution feel though process as

from an first out as gate So I don't we'll expansion not provider. feel be the currently of though

Alexander Henderson

right. All

already have of running that, And half already sense don't growth that the fact in here. primarily be for you've to 'XX you've resulted sudden context expansions said CY that to in growth. to 'XX, those no let your why it and they were and I being a So the the or participants. felt hired was fact, understand me -- to me months budget. half little your would already of around that lull the the there against subject of really, second hired in you commentary performance software that of significant the ahead the improved numbers of distribution second The makes first a go in salespeople in benefits that the you've X there

John Wood

that seen an we'll to Alex, we've on pipeline. this we seen said from what I QX is why there. XXXX give will is it that's earnings I've and earlier, then What guidance, John. relates the expansion as actual And -- go in

be Mark do conservative of think a -- point is you relates think to way. your expectations I've my XXXX. And for very QX earnings to we're from we'll do on said about Mark, I hope Bendza that better in able trying it set I to And that is than what talking view? did as correctly

Mark Bendza

Yes, that's I fair. think

You fair way. it in answered a

Alexander Henderson

were and half the $XX.XX, from are distribution might fair the from hard be down of sales year understand. down But the contribution in to first mechanics back with this than at less the while of they be $XX.X, is revenue to stock than half why going that

already getting from you're past You've that contribution said the in them.

John Wood

happen, I that's Alex. don't to going think

just and providing going you we as -- -- today. are we're I from see our are good just sort channel giving we're again, of without a full to distribution up think we heads partnerships. contribution for XXXX, sales guidance We're where

Alexander Henderson

right. All

that, that Obviously, away that a to Is to not why then gears that So again, go clearly, And significantly mix mix would 'XX, down it sequentially year. improves is for shift from let's next shifts year. I that, be side. would XX% over this was that's outlook be for I there up flat gross product. quite margin the lower Networks that as gross case? assume going reason the much margin to get Secure that any it the

Mark Bendza

Yes.

few there. a puts and takes there's So

to PreCheck you'll PreCheck see that's grows, would higher then days next between running as networks. cost to cost dilutive attached And leverage margins also and PreCheck, a program higher-margin going of sales shift P&L. program. program. headwind benefit additional phases a I favorable that against that positive there's see margin through fixed time that shift within in over as see ancillary get going over going solutions itself, So to mix to revenues mix for solutions expect into from as then In the we should you're have networks, gross of operating networks And to slightly you're solutions to early favorable the margins. gross be some within And you're well. potential And year think some as then as there time, outgrow

from networks. kind shift PreCheck the are of puts solutions tailwinds as as and headwind the within and margins those takes, possibly mix networks well from then slightly between So and some higher

Alexander Henderson

Okay.

the do had you 'XX So the least that the fourth reasonable expected a given fourth that quarterly is for that in is $XXX to by for of had that million, in the $XX the TSA point, expected ramp quarter at least But of revenue delay that million you worth from of think at think to from the ignoring quarter? it kicked to year, end baseline revenues I it forward. reasonable to [pre-peak]? assuming TSA the

Mark Bendza

actually a that around perhaps scenario in where get of could our potentially a that love I we on to So could you would But run second of couple months the in rate a belts. more experience be program half you under see see as specific those levels.

Operator

of Northland line Capital from Chokshi with comes question next the Our Nehal Markets.

Nehal Chokshi

items the Mark, into, include you want that changing, more way you're there's through? changing still that visibility still scrub guide initial high out you you to that a the say here when that does have that used 'XX mean guidance to when OEMs have here word, calendar low-visibility may look

Mark Bendza

in in bottom fourth not of terms would 'XX. about the thing chain believe X those around like of is But are guidance December interest range, one We transparency, $X the full the the chain shipments to this at these that end again, guidance these Again, But levels million supply quarter go even here. -- is of will highlight constraints. the probably are there's I in constraints -- range. supply for assumed that down of No, out.

suppliers subcontractor, plastics. these particular So and around to electronic are our electronics in components and

of we'll And year-over-year this the I networks range. solutions based know, this I will respect $X.X gone -- additional And bottom at to $X have that solid think yes, now, provided end the a feel the guidance I for direction what stage $X million that now 'XX. delayed stage, we quarter. bottom also there's I of million our with end on there's of another 'XX, would high-level of so there's risk on of kind think little thought the now. at at and range. within out bear And reflects through guidance right there planning scenarios different the But shipments call. and the by the there scrub our are we million out. But We're working left out on those thinking give with process We those didn't go at still 'XX again, on better in XQ looking quarter. current that at this us, I everything a which

Nehal Chokshi

Okay. would towards that effectively or year-over-year XX% Or and then correct growth Security more into calendar to across X the be a even look that be 'XX subsegments? high look, like preliminary Is to sounds a going respect is preliminary weighted probably with interpretation? it IDTrustXXX. it And Solutions, high XX%

Mark Bendza

Yes.

I the driver it. growth think of be say that's the would within about right I in ramp would single largest thinking PreCheck. solutions, the way

Nehal Chokshi

Okay.

there? growth year within Okay. had that Bureau Got Is it. X XQ growth Census performance, year-over-year the the parse say you And Or across that from even in XX% how subsegments? year-over-year the the Solutions period. Security did XX% relatively does you 'XX ago out for then adjusting

Mark Bendza

Yes.

-- would followed information Xacta say Telos largest single Solutions assurance, grower the is capability. which I ID, there within So our primarily the is by

Nehal Chokshi

Right.

FedRAMP legacy opportunity part related what's solution Xacta utilized? captured? script, right. has percent mentioned lot being and you you VMware for of in the of And now What such finally, wins with bellwethers, Salesforce. a John, FedRAMP And of industry All do as percent, associated typical the Telos Okay. then your other think

John Wood

it's very percentage Yes. small the And people I is generally that now, say would speaking, right manually. do a it, way Nehal.

us to FedRAMP there's to it expand takes front a think in of to because time to compliance. are we the significantly I actually using automation So great that opportunity get reduce

Operator

question-and-answer will you. session. Thank This conclude closing to call remarks. will Wood turn for today's over John I now the back

John Wood

really results ongoing larger increased the We've am support. a actually third Solutions got with shareholders today. emphasis I and on issues 'XX, in to for we're government outstanding to want thank on delivered well and future Security while never really, had And We I've positioned leading couple just solid quarter we strong than We've of potential. I programs, cybersecurity their across Guys, of excited our capitalize commercial got organizations. the have regard about our people. been Telos' more tremendous to and

will for as now. Thanks that remember, -- long So say you I you a time of I'm I thank one Bye-bye just a want listening. part long to be me. for all as long-term plan And this a lot. is have guys to a investment,

Operator

conference for gentlemen, and call. participation. Ladies this today's Thank you your concludes

now may disconnect. You

Christina Mouzavires	Investor Relations
John Wood	Chief Executive Officer and Chairman
Mark Bendza	Chief Financial Officer
Mark Griffin	Executive Vice President of Security Solutions
Ed Williams	Executive Vice President and COO
Zach Cummins	B. Riley Securities
Daniel Ives	Wedbush Securities
Keith Bachman	BMO Capital Markets
Alexander Henderson	Needham & Company
Nehal Chokshi	Northland Capital Markets

Telos (TLS) 15 Nov 212021 Q3 Earnings call transcript